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Risc i recompensa n Supply Chain Management

8/29/2005 8/29/2005 What should you be doing to manage supply chain risk? Ce ar trebui s se fac pentru a gestiona lan ul de apro!i"ionare de risc? #s supply chains gro$ e!er more comple%& the 'uestion has ne!er been more difficult to ans$er( Ca )i lan uri de apro!i"ionare creasc din ce *n ce mai comple%& problema nu a fost niciodat mai greu de rspuns( +rom Supply Chain Strategy ( ,e la Supply Chain strategiei. by ,a!id -o!et de ,a!id -o!et .o matter the risks& global supply chains continue to gro$ longer and more comple% as companies push deeper into uncharted territory in search of lo$er costs( /ndiferent de riscuri& lan urilor globale de apro!i"ionare continu s creasc mai mult )i mai comple%e ca companii *mpinge mai ad0nc *n teritoriul uncharted *n cutare de costuri mai sc"ute( #s a result& the 'uestions surrounding $hat managers should do about risk ha!e ne!er been more pressing( Ca re"ultat& *ntrebri ce *ncon1oar managerii ar trebui s fac despre risc nu au fost niciodat mai presante( ,o you add tons of in!entory& 'uietly ripening to$ard obsolescence? #i aduga tone de in!entar& *n lini)te spre maturi"are obsolescence? -uild myriad backup plans& most of $hich you2ll ne!er dra$ on? -uild miriad planuri de re"er!& de cele mai multe pe care nu !e i mai fi niciodat trage pe? 3r rethink the $hole thing and retreat from the cost4sa!ing sourcing deals that are dri!ing you into far4flung lands in the first place? 5au reg0ndim totul )i retragerea din costul de economisire surs care se ocup de conducere *n ceea ce4flung terenuri& *n primul r0nd? While there are no easy ans$ers6and& in most cases& no 7right7 ans$ers6there are frame$orks for thinking about ho$ to manage risk more effecti!ely and reach the right balance $ith potential return that $ill sho$ benefits to supply chain managers& strategic planners& and C4le!el e%ecuti!es alike( ,e)i nu e%ist rspunsuri u)or4)i& *n cele mai multe ca"uri& nici un 7drept7 rspunsuri4e%ist cadre de g0ndire cu pri!ire la modul de a gestiona mai eficient de risc )i de a a1unge la echilibru dreptul de a re!eni cu poten ial& care !a arta beneficiile de a lan ului de apro!i"ionare manageri& planificatorii strategici & )i C la ni!el de directori& deopotri!( 8he key is& first& to e%amine your basic supply4to4market strategy to ensure you are follo$ing the course that best supports your business& and& second& to determine the right tactics to support your strategy( Cheia este& *n primul r0nd& pentru a e%amina dumnea!oastr de ba" de ofert& pentru a4strategie de pia pentru a ! asigura c sunt de la curs care suport cel mai bine afacerii d!s(& )i& *n al doilea r0nd& pentru a stabili dreptul de tactici pentru a spri1ini strategia dumnea!oastr( 8his t$o4step process may sound simple enough& but to e%ecute it correctly you must ha!e a firm grip on your company2s core strategies& be $illing to in!est in ne$ forms of internal analysis such as portfolio modeling& and be prepared to make decisions that might fly in the face of

organi"ational precedent( #cest proces *n dou etape poate parea destul de simplu& dar pentru a e%ecuta corect& trebuie s a!e i o firm apuca pe firmei tale de ba" strategiile& s fie dispus s in!esteasc *n noi forme de interne& cum ar fi anali"a de portofoliu modeling& )i s fie pregtit s ia deci"ii care ar putea "bura *n fa a organi"atorice precedent( 5trategy first 5trategia de prima /n order to effecti!ely balance risk and opportunity& product manufacturers& distributors& and retailers need to periodically rethink their strategies for going to market( 9entru a *n mod eficient de risc )i posibilitatea de echilibru& productorii& distribuitorii )i comercian ii cu amnuntul trebuie s periodic reconsidere strategiile de g0nd s pia ( 8here are t$o $ays to strategically address the burgeoning nature of risk: ;<= shorten the supply chain in order to reduce cycle time and disruption risk or ;2= optimi"e the portfolio of supply chain sources and locations in order to gain fle%ibility through di!ersification( >%ist dou moduri de a adresa strategic de *nmugurire natura de risc: ;<= scurta a lan ului de apro!i"ionare& cu scopul de a reduce ciclul de timp )i de perturbare sau de risc ;2= optimi"a portofoliul de lan ul de apro!i"ionare )i de surse de locuri pentru a obtine fle%ibilitate prin di!ersificarea( ?any inno!ati!e companies ha!e used the first approach effecti!ely& but it does ha!e its limitations6indeed& it pre!ents a company from taking full ad!antage of the economic benefits of e%tending the supply chain globally( ?ulte dintre companiile ino!atoare au folosit prima abordare *n mod eficient& dar ea trebuie s *)i aib limitri4@ntr4ade!r& *mpiedic o societate de la care iau profite pe deplin de beneficiile economice de e%tindere a lan ului de apro!i"ionare& la ni!el global( +or firms set on dri!ing their supply chains deeper into ne$ markets& the second strategic approach may offer some as4yet4untapped ad!antages( 9entru firmele stabilite pe lor de conducere a lan urilor de apro!i"ionare mai ad0nc *n noi pie e& cea de4a doua abordare strategic poate oferi unele ca4nee%ploatat *nc4a!anta1e( 8he idea of optimi"ing a company2s portfolio of sources& assembly locations& and distribution points deri!es from financial portfolio theory and offers a !aluable frame$ork for assessing risk/return tradeoffs( /deea de o companie de optimi"are a portofoliului de surse& loca iile de asamblare& precum )i puncte de distribu ie deri! din portofoliu teoriei financiare )i ofer un cadru !aloros pentru e!aluarea riscului / tradeoffs re!eni( 8he goal here is to create a supply chain strategy that best fits the o!erarching needs of the firm through a process of modeling that clearly sho$s decision makers the benefits and risks of different sourcing tactics( 5copul aici este de a crea un lan de apro!i"ionare strategie care se potri!e)te cel mai bine la ne!oile general al firmei printr4un proces de modelare& care arat clar factorilor de deci"ie de beneficiile )i riscurile de surse diferite tactici( 8hrough portfolio modeling& firms can mi% and match different tactics in pursuit of the arrangement of sources& locations& and so on that ma%imi"es the supply chain2s ability to support a specific company strategy( 9rin portofoliul de modelare& firmele pot amesteca )i potri!i diferite tactici& *n *ncercarea de a amena1area de surse& loca ii& )i a)a mai departe care ma%imi"ea" a lan ului de apro!i"ionare& are capacitatea de a spri1ini o anumit strategie de companie(

Creating a portfolio starts $ith de!eloping a set of alternati!e supply chain designs that support the business in different $ays( Crearea unui portofoliu *ncepe cu elaborarea unui set de alternati!e ale lan ului de apro!i"ionare& care proiectea" suport de afaceri *n diferite moduri( +or e%ample& one design might emphasi"e speed to market& another might focus on manufacturing 'uality& and a third might home in on cost( ,e e%emplu& un design ar putea e!iden ia !ite" de pe pia & o alt produc ie ar putea s se concentre"e pe calitate& )i un al treilea ar putea acas *n pe ba"a costului( /n parallel& supply chain risks associated $ith each design are identified& classified& and 'uantified( @n paralel& lan ul de apro!i"ionare riscurile asociate cu fiecare desen sunt identificate& clasificate& )i cuantificate( 8he pro1ected returns and risks can then be modeled and plotted on a spectrum( # proiectat re!ine )i riscuri pot fi modelate )i plotted pe un spectru( 8he optimal solution $ill lie along the 7efficient frontier&7 representing the set of options $ith the highest return for a gi!en le!el of risk( 5olutiei optime !a sta alturi de 7eficient de frontier7& care repre"int un set de op iuni cu cea mai mare a re!eni pentru un anumit ni!el de risc( 8he key here is to combine supply chain elements $hose disruption risks are not directly tied to each other( Cheia aici este de a combina elementele lan ului de apro!i"ionare a cror *ntreruperi riscurile nu sunt direct legate de ele( /n other $ords& you are seeking to minimi"e the likelihood of a domino effect in $hich a problem at one stop in the supply chain imperils others( Cu alte cu!inte& te caut& pentru a minimi"a riscul de un efect de domino& *n care o problem la o oprire *n lan ul de apro!i"ionare imperils al ii( 8here may be se!eral effecti!e strategies to choose from& offering different combinations of risk and re$ard( #r putea e%ista mai multe strategii eficiente de a4)i alege de la& in oferirea de combina ii diferite de risc )i recompens( A(((B A(((B 9ortfolio modeling offers se!eral ad!antages( 9ortofoliu de modelare ofer mai multe a!anta1e( +irst& it is understood and practiced by C+3s and allo$s supply chain e%ecuti!es to make the case about risk in terms that senior management understands( @n primul r0nd& este de *n eles )i practicat de ctre C+3s lan ul de apro!i"ionare )i permite de a face directori de ca" despre risc *n ceea ce conducere *n elege( 5econd& it appropriately focuses on the business !alue that supply chain management can deli!er6 through satisfied customers& capital efficiency& and lo$ operating costs6for a gi!en le!el of risk( @n al doilea r0nd& aceasta se concentrea" *n mod corespun"tor cu pri!ire la !aloarea de afaceri care supply chain management poate li!ra4prin clien i satisfcu i& capital de eficien & precum )i costurile de e%ploatare sc"ute4pentru un anumit ni!el de risc( 8his frame$ork can also adapt to changes in supply chain strategy in light of shifts& o!er time& in relati!e costs and percei!ed risks( #cest cadru poate& de asemenea& s se adapte"e la schimbri *n lan ul de apro!i"ionare *n func ie de strategia de schimburi& de4a lungul timpului& relati! la costurile )i riscurilor percepute( 8hen& do$n to tactics #poi& *n 1os pentru a tactici 3nce the strategy is in place& many $ays e%ist to reduce risk( 3dat ce strategia este *n !igoare& e%ist mai multe moduri pentru a reduce riscul( Cere are practical steps any company can take: #ici sunt msurile practice orice companie poate a!ea: Demand management De gestionare a cererii

<( <( /mpro!e demand planning $ith distributors and retailers by being closely connected to customers through shared demand forecasts& !endor4managed in!entory& and other 1oint systems( @mbunt irea cerere de planificare cu distribuitorii )i comercian ii cu amnuntul de ctre fiind str0ns legate de clien i prin intermediul parta1ate cererii pre!i"iuni& furni"or de4a reusit de in!entar& precum )i alte sisteme de comune( 8he goal is to reduce the risk of being blindsided by demand shifts( 5copul este de a reduce riscul de a fi blindsided cerere de schimburi( Supply management Oferta de management 2( 2( Work $ith suppliers to create contingency plans( ,e lucru cu furni"orii pentru a crea planuri( /n the $ake of 9/<<& Continental 8e!es& a ma1or automoti!e supplier& acti!ated e%isting contingency relationships $ith transport firms such as >mery to supplement air shipments of parts from >urope( @n urma 9 / <<& Continental 8e!es& un important furni"or de automobile& acti!at e%istente contingen rela ii cu firme de transport& cum ar fi >mery& de completare a aerului transporturilor de piese din >uropa( #fter making a same4 day assessment of parts flo$s at risk& Continental 8e!es $as able to rely on prearranged ocean shipping space and increased in!entories& thus allo$ing its customers& including 8oyota& to continue operations $ith little disruption o!er the follo$ing $eeks( ,up ce a i fcut4o aceea)i "i de e!aluare a flu%urilor de piese de risc& Continental 8e!es a fost capabil s se ba"e"e pe prearranged ocean de transport maritim spa iu )i o cre)tere a stocurilor& permi 0nd astfel clien ilor si& inclusi! 8oyota& pentru a continua opera iunile cu mici *ntreruperi *n urmtoarele sptm0ni( D( D( ,i!ersify sourcing to reduce the risk of catastrophic supply chain failure( ,i!ersificarea surs pentru a reduce riscul de e)ec catastrofale lan ul de apro!i"ionare( >stablish backup arrangements by 'ualifying additional suppliers& $ithout necessarily a$arding them significant !olume( 5tabilirea regimului de re"er! suplimentar de care beneficia" de furni"ori& fr neaprat atribuire a lor !olum semnificati!( Eeberit& a large 5$iss sanitary fi%ture manufacturer& has adopted a dual sourcing policy( Eeberit& un mare productor el!e ian sanitare dispo"iti!& a adoptat o politic dubl surs( /t either retains an e%isting supplier as a second source& or de!elops a second source in #sia( 5e pstrea" fie un furni"or e%istent ca o a doua sursa& sau de"!olt o a doua surs *n #sia( Companies can choose to meet <0 percent to 20 percent of their needs from a second supplier& $hich generally $ill $ork hard in hopes of displacing the primary supplier( Companiile pot alege s *ndeplineasc <0 la sut la 20 la sut din ne!oile lor de la un al doilea furni"or& *n general& care !a lucra din greu *n speran a de displacing principal furni"or( 5er!ice4le!el agreements can call for rapid ramp4up if re'uired( 5er!iciul de la ni!el de acorduri pot apela pentru rapid la sol4up& dac este necesar( F( F( >%tend insurance policies to co!er o!erseas suppliers( >%tinderea poli e de asigurare pentru a acoperi peste furni"ori( Contingent business interruption co!erage& for e%ample& is typically limited to the Gnited 5tates and nearby countriesH ha!e it e%plicitly e%tended to co!er ma1or suppliers located in #sia and other lo$4cost geographies( Contingent de afaceri *ntrerupere de acoperire& de e%emplu& este de obicei limitat la 5tatele Gnite )i

rile !ecineH fi e%tins pentru a acoperi *n mod e%plicit ma1ore furni"orii din #sia )i *n alte "one geografice lo$4cost( Logistics enhancement Logistica de sporire 5( 5( 8o deal $ith contingencies& employ a ma1or third4party logistics pro!ider $ith broad resources( 9entru a face cu nepre!"ute& s anga1e"e o mare ter furni"or de logistica& cu largi de resurse( 3ne electrical manufacturer recently asked its freight for$arder to pro!ide $eekly updates on the best G5 ports for its inbound product flo$s from #sia( Gn productor electrice a cerut recent sa marf +or$arder de a furni"a sptm0nal actuali"ri de pe cele mai bune 5G# porturile sale de intrare pentru flu%urile de produse din #sia( /n essence& the logistics pro!ider becomes a key risk4mitigation agent by continually looking o!er the hori"on on a company2s behalf( @n esen & de la furni"orul de logistica de!ine o cheie de reducere a riscurilor de ctre agentul continuu uitat peste ori"ontul pe numele unei companii( I( I( ?odel and optimi"e in!entories on a disaggregated basis& as all components are not created e'ual( ?odel )i optimi"area stocurilor defalcate pe o ba"a& ca toate componentele nu sunt create egal( ?odeling supply susceptibility to delays leads to finer tuning of safety stocks& $hich may rise for some parts or finished goods ;depending on $hich point in the supply chain one is looking at= but fall for others( ?odelare apro!i"ionare sensibilitate pentru a duce la *nt0r"ieri fine tuning de siguran a stocurilor& ceea ce poate genera pentru unele pr i sau produse finite ;*n func ie de punctul *n care a lan ului de apro!i"ionare& se uita la unu=& dar se *ncadrea" pentru al ii( # typical product $ith a one4 $eek lead time and deli!ery !ariability of one day $ill re'uire <5 percent more safety stock& for e%ample& if supply !ariability increases by one day& and <J5 percent more if !ariability increases by a $eek( Gn e%emplu tipic de produs cu o sptm0n& timp de li!rare )i de !ariabilitate de o "i !a solicita <5 la sut mai multe stocuri de siguran & de e%emplu& *n ca"ul *n apro!i"ionare !ariabilitate cre)te cu o "i& )i <J5 la sut mai mult dac !ariabilitate cre)te cu o sptm0n( Supply chain integration Lanul de aprovizionare de integrare J( J( /ncrease product component standardi"ation( Cre)terea produsului component de standardi"are( 8he ability to mi% and match components from multiple suppliers and plants allo$s such manufacturers as ,ell& /-?& and Cerman ?iller to make their supply chains more fle%ible( Capacitatea de a se amestec )i se potri!esc cu componente de la mai mul i furni"ori )i productori de astfel de plante permite ca ,ell& /-?& Cerman ?iller& )i s4)i lan urilor de apro!i"ionare mai fle%ibile( Keducing product comple%ity shortens cycle times in normal conditions and speeds response to supply crises as $ell( Keducerea numrului de produse de comple%itate scurtea" ciclul de ori *n condi ii normale )i de !ite"a de rspuns la cri"e de apro!i"ionare& de asemenea( 8( 8( Create a centrali"ed product data management system( Crea i un produs de date centrali"ata a sistemului de management( /f the supplier is the only one $ho kno$s the actual specifications of products or components& rapid resourcing of products can be

time4consuming& if not impossible& during an emergency( @n ca"ul *n care furni"orul este singurul care cunoa)te !aloarea real a caietului de sarcini de produse sau de componente& finan area rapid a produselor poate fi consumatoare de timp& dac nu imposibil& *n timpul unei urgen e( Centrali"ed product data for immediate consultation or preempti!e use helps reduce the risk of disruption( 9rodus de date centrali"ate pentru consultare imediat sau preempti!e utili"are a1ut la reducerea riscului de perturbare( /n practice& this means de!eloping a database of product and component designs so that substitute suppliers can be rapidly brought up to speed( @n practic& aceasta *nseamn o ba" de date *n curs de de"!oltare de produse )i componente desene )i modele& astfel *nc0t furni"orii pot fi *nlocui i rapid adus p0n la !ite"a( Companies that ha!e sole4 sourced a key component for years& $ithout maintaining control o!er dra$ings or other design characteristics& take heed( Companiile care au origine unic4o component cheie de ani de "ile& fr s men in controlul asupra desenelor sau a altor caracteristici de proiectare& ia lua *n seam( 9( 9( Kaise !isibility along the e%tended supply chain( Cre)te !i"ibilitatea4a lungul a e%tins lan de apro!i"ionare( When in!entory is tracked from order placement to reception at a for$ard distribution center or customer& it can effecti!ely become part of a company2s safety stock( C0nd in!entar este urmrit de la ordinea de plasare pentru a Kecep ie la un centru de distribu ie *nainte sau client& de a putea de!eni parte a unei companii de securitate stoc( #chie!ing real4time kno$ledge of the location of parts and products as they flo$ from distant origins is not easy& to be sure& but trade management soft$are can help track global goods flo$s and di!ert shipments $hen necessary( Keali"area *n timp real cuno)tin e de amplasare a unor pr i )i produse pe care le flu% de la distan origini nu este u)or& pentru a fi sigur& dar comerciale soft$are de gestiune a urmri pot a1uta la ni!el global a flu%urilor de mrfuri )i de redirec ionare transporturilor& atunci c0nd este necesar( <0( <0( ?onitor specific $arning signs of trouble( ?onitorul specifice semne de a!erti"are de probleme( 8racking a limited number of supply chain risk indicators& such as a!erage train speed& $eeks of orders outstanding& component deli!ery !ariability& and e%change rate mo!ements& can pro!ide a crucial $arning as a problem approaches the tipping point and becomes a dangerous disruption( ,e urmrire a unui numr limitat de indicatori de lan ul de apro!i"ionare de risc& cum ar fi !ite"a medie de tren& sptm0ni de ordine de restante& component de li!rare !ariabilitate& )i mi)crile cursului de schimb& pot oferi o a!erti"are crucial ca o problem de abordare a e!acurii )i de!ine un punct de *ntrerupere periculoase( /t is no longer sufficient to track 1ust ser!ice le!els& lead times& in!entories& and logistics costs( .u mai este suficient pentru a urmri doar ni!elul ser!iciilor& duce ori& a stocurilor& )i logistica& cheltuieli de 1udecat( Changing the mindset 5chimbarea de g0ndire -y using an appropriate mi% of the initiati!es outlined here& managers should e%pect to see real impro!ements in their supply chain performance( 9rin folosirea unui amestec de ini iati!ele pre"entate aici& managerii ar trebui s a)tepta i pentru a !edea *mbunt iri reale lor *n lan ul de apro!i"ionare de performan ( 3f course& incorporating risk considerations into $hat ha!e historically been highly cost4focused analyses re'uires a

shift in thinking and organi"ational beha!ior( ,esigur& *ncorporarea de risc *n ceea ce considerente au fost e%trem de anali"e cost4concentrat necesit o schimbare *n g0ndire )i comportament organi"a ional( 8o impro!e the risk/re$ard e'uation& compartmentali"ed decision making must be replaced by cross4functional cooperation( 9entru a *mbunt i risc / recompensa ecua ie& compartmentali"ed procesul de luare a deci"iilor trebuie s fie *nlocuit de cooperare inter4func ionale( 9articipants can come from marketing& sales& sourcing& manufacturing& finance& and risk management( 9articipantii pot !eni de la marketing& !0n"ri& surs& produc ie& finan are& precum )i de gestionare a riscurilor( >liciting full commitment from all these functions might re'uire the C>32s or C332s in!ol!ement( 9ro!oca anga1ament deplin la toate aceste func ii ar putea necesita C>3 al sau C33 implicarea( 8he long4term trend to$ard 1ust4in4time deli!ery combined $ith strong economic incenti!es to access the best global supply sources !irtually guarantees abundant risks throughout the supply chain( 9e termen lung& tendin a spre 1ust4in4timp de li!rare& combinate cu stimulente economice puternice a a!ea acces la cele mai bune surse de apro!i"ionare global practic garan ii riscurile abundente pe tot parcursul lan ului de apro!i"ionare( +rictionless commerce remains a utopian !ision rather than reality( +rictionless commerce utopice rm0ne o !i"iune mai degrab dec0t realitatea( Where managers can e%cel& ho$e!er& is in identifying& 'uantifying& and preparing for the ne$ realities of risk( @n ca"ul *n care managerii pot >%cel& cu toate acestea& este *n identificarea& cuantificarea& )i pregtirea pentru noile realit i de risc( >%cerpted $ith permission from 7-alancing Elobal Kisk and Keturn&7 Supply Chain Strategy & Lol( >%cerpted cu permisiune de la 7Elobal de echilibrare a riscului )i de returnare&7 Strategia de Supply Chain Lol(( <& .o( D& #ugust 2005( <& .o( D& august 2005( 5ee the current issue of 5upply Chain 5trategy ( Le"i 9roblemele curente de 5upply Chain 5trategiei( David !ovet is a !ice president in the !alue nets practice at ?ercer ?anagement Consulting( David este un !ovet Lice 9resident *n !aloare plase practic la ?ercer ?anagement Consulting(

Ris" and Re#ard in Supply Chain Management


8/29/2005 What should you be doing to manage supply chain risk? #s supply chains gro$ e!er more comple%& the 'uestion has ne!er been more difficult to ans$er( +rom Supply Chain Strategy( by ,a!id -o!et

.o matter the risks& global supply chains continue to gro$ longer and more comple% as companies push deeper into uncharted territory in search of lo$er costs( #s a result& the 'uestions surrounding $hat managers should do about risk ha!e ne!er been more pressing( ,o you add tons of in!entory& 'uietly ripening to$ard obsolescence? -uild myriad backup plans& most of $hich you2ll ne!er dra$ on? 3r rethink the $hole thing and retreat from the cost4sa!ing sourcing deals that are dri!ing you into far4flung lands in the first place? While there are no easy ans$ers6and& in most cases& no 7right7 ans$ers6there are frame$orks for thinking about ho$ to manage risk more effecti!ely and reach the right balance $ith potential return that $ill sho$ benefits to supply chain managers& strategic planners& and C4le!el e%ecuti!es alike( 8he key is& first& to e%amine your basic supply4to4market strategy to ensure you are follo$ing the course that best supports your business& and& second& to determine the right tactics to support your strategy( 8his t$o4step process may sound simple enough& but to e%ecute it correctly you must ha!e a firm grip on your company2s core strategies& be $illing to in!est in ne$ forms of internal analysis such as portfolio modeling& and be prepared to make decisions that might fly in the face of organi"ational precedent( 5trategy first /n order to effecti!ely balance risk and opportunity& product manufacturers& distributors& and retailers need to periodically rethink their strategies for going to market( 8here are t$o $ays to strategically address the burgeoning nature of risk: ;<= shorten the supply chain in order to reduce cycle time and disruption risk or ;2= optimi"e the portfolio of supply chain sources and locations in order to gain fle%ibility through di!ersification( ?any inno!ati!e companies ha!e used the first approach effecti!ely& but it does ha!e its limitations6indeed& it pre!ents a company from taking full ad!antage of the economic benefits of e%tending the supply chain globally( +or firms set on dri!ing their supply chains deeper into ne$ markets& the second strategic approach may offer some as4yet4untapped ad!antages( 8he idea of optimi"ing a company2s portfolio of sources& assembly locations& and distribution points deri!es from financial portfolio theory and offers a !aluable frame$ork for assessing risk/return tradeoffs( 8he goal here is to create a supply chain strategy that best fits the o!erarching needs of the firm through a process of modeling that clearly sho$s decision makers the benefits and risks of different sourcing tactics( 8hrough portfolio modeling& firms can mi% and match different tactics in pursuit of the arrangement of sources& locations& and so on that ma%imi"es the supply chain2s ability to support a specific company strategy( Creating a portfolio starts $ith de!eloping a set of alternati!e supply chain designs that support the business in different $ays( +or e%ample& one design might emphasi"e speed to market& another might focus on manufacturing 'uality& and a third might home in on cost( /n parallel& supply chain risks associated $ith each design are identified& classified& and 'uantified( 8he pro1ected returns and risks can then be modeled and plotted on a spectrum( 8he optimal solution $ill lie along the 7efficient frontier&7 representing the set

of options $ith the highest return for a gi!en le!el of risk( 8he key here is to combine supply chain elements $hose disruption risks are not directly tied to each other( /n other $ords& you are seeking to minimi"e the likelihood of a domino effect in $hich a problem at one stop in the supply chain imperils others( 8here may be se!eral effecti!e strategies to choose from& offering different combinations of risk and re$ard( A(((B 9ortfolio modeling offers se!eral ad!antages( +irst& it is understood and practiced by C+3s and allo$s supply chain e%ecuti!es to make the case about risk in terms that senior management understands( 5econd& it appropriately focuses on the business !alue that supply chain management can deli!er6through satisfied customers& capital efficiency& and lo$ operating costs6for a gi!en le!el of risk( 8his frame$ork can also adapt to changes in supply chain strategy in light of shifts& o!er time& in relati!e costs and percei!ed risks( 8hen& do$n to tactics 3nce the strategy is in place& many $ays e%ist to reduce risk( Cere are practical steps any company can take: Demand management <( /mpro!e demand planning $ith distributors and retailers by being closely connected to customers through shared demand forecasts& !endor4managed in!entory& and other 1oint systems( 8he goal is to reduce the risk of being blindsided by demand shifts( Supply management 2( Work $ith suppliers to create contingency plans( /n the $ake of 9/<<& Continental 8e!es& a ma1or automoti!e supplier& acti!ated e%isting contingency relationships $ith transport firms such as >mery to supplement air shipments of parts from >urope( #fter making a same4day assessment of parts flo$s at risk& Continental 8e!es $as able to rely on prearranged ocean shipping space and increased in!entories& thus allo$ing its customers& including 8oyota& to continue operations $ith little disruption o!er the follo$ing $eeks( D( ,i!ersify sourcing to reduce the risk of catastrophic supply chain failure( >stablish backup arrangements by 'ualifying additional suppliers& $ithout necessarily a$arding them significant !olume( Eeberit& a large 5$iss sanitary fi%ture manufacturer& has adopted a dual sourcing policy( /t either retains an e%isting supplier as a second source& or de!elops a second source in #sia( Companies can choose to meet <0 percent to 20 percent of their needs from a second supplier& $hich generally $ill $ork hard in hopes of displacing the primary supplier( 5er!ice4le!el agreements can call for rapid ramp4up if re'uired( F( >%tend insurance policies to co!er o!erseas suppliers( Contingent business interruption co!erage& for e%ample& is typically limited to the Gnited 5tates and nearby countriesH

ha!e it e%plicitly e%tended to co!er ma1or suppliers located in #sia and other lo$4cost geographies( Logistics enhancement 5( 8o deal $ith contingencies& employ a ma1or third4party logistics pro!ider $ith broad resources( 3ne electrical manufacturer recently asked its freight for$arder to pro!ide $eekly updates on the best G(5( ports for its inbound product flo$s from #sia( /n essence& the logistics pro!ider becomes a key risk4mitigation agent by continually looking o!er the hori"on on a company2s behalf( I( ?odel and optimi"e in!entories on a disaggregated basis& as all components are not created e'ual( ?odeling supply susceptibility to delays leads to finer tuning of safety stocks& $hich may rise for some parts or finished goods ;depending on $hich point in the supply chain one is looking at= but fall for others( # typical product $ith a one4$eek lead time and deli!ery !ariability of one day $ill re'uire <5 percent more safety stock& for e%ample& if supply !ariability increases by one day& and <J5 percent more if !ariability increases by a $eek( Supply chain integration J( /ncrease product component standardi"ation( 8he ability to mi% and match components from multiple suppliers and plants allo$s such manufacturers as ,ell& /-?& and Cerman ?iller to make their supply chains more fle%ible( Keducing product comple%ity shortens cycle times in normal conditions and speeds response to supply crises as $ell( 8( Create a centrali"ed product data management system( /f the supplier is the only one $ho kno$s the actual specifications of products or components& rapid resourcing of products can be time4consuming& if not impossible& during an emergency( Centrali"ed product data for immediate consultation or preempti!e use helps reduce the risk of disruption( /n practice& this means de!eloping a database of product and component designs so that substitute suppliers can be rapidly brought up to speed( Companies that ha!e sole4sourced a key component for years& $ithout maintaining control o!er dra$ings or other design characteristics& take heed( 9( Kaise !isibility along the e%tended supply chain( When in!entory is tracked from order placement to reception at a for$ard distribution center or customer& it can effecti!ely become part of a company2s safety stock( #chie!ing real4time kno$ledge of the location of parts and products as they flo$ from distant origins is not easy& to be sure& but trade management soft$are can help track global goods flo$s and di!ert shipments $hen necessary( <0( ?onitor specific $arning signs of trouble( 8racking a limited number of supply chain risk indicators& such as a!erage train speed& $eeks of orders outstanding& component deli!ery !ariability& and e%change rate mo!ements& can pro!ide a crucial $arning as a

problem approaches the tipping point and becomes a dangerous disruption( /t is no longer sufficient to track 1ust ser!ice le!els& lead times& in!entories& and logistics costs( Changing the mindset -y using an appropriate mi% of the initiati!es outlined here& managers should e%pect to see real impro!ements in their supply chain performance( 3f course& incorporating risk considerations into $hat ha!e historically been highly cost4focused analyses re'uires a shift in thinking and organi"ational beha!ior( 8o impro!e the risk/re$ard e'uation& compartmentali"ed decision making must be replaced by cross4functional cooperation( 9articipants can come from marketing& sales& sourcing& manufacturing& finance& and risk management( >liciting full commitment from all these functions might re'uire the C>32s or C332s in!ol!ement( 8he long4term trend to$ard 1ust4in4time deli!ery combined $ith strong economic incenti!es to access the best global supply sources !irtually guarantees abundant risks throughout the supply chain( +rictionless commerce remains a utopian !ision rather than reality( Where managers can e%cel& ho$e!er& is in identifying& 'uantifying& and preparing for the ne$ realities of risk( >%cerpted $ith permission from 7-alancing Elobal Kisk and Keturn&7 Supply Chain Strategy& Lol( <& .o( D& #ugust 2005( 5ee the current issue of 5upply Chain 5trategy( David !ovet is a !ice president in the !alue nets practice at ?ercer ?anagement Consulting(